It's been a tough month for investors. After a blissful 18 months, the 'markets can only go up' narrative seems to be wearing thin.
Despite a late surge on the last day of the month, the S&P 500 wrapped up its worst month since March 2020, with the tech-heavy Nasdaq narrowly avoiding its worst-ever start to the year.
The Nasdaq is now very much in correction territory, down 12% in 2022, with the S&P 500 down 5.3%.
Monthly percent change in the S&P 500
If you dig a little deeper, the true extent of the volatility becomes more apparent. 1 in 3 companies in the Russell 3000 Index (Index of the entire US public stock market) has fallen more than 40% from their 52-week highs. An ode to index investing and a stark reminder that stock picking is hard.
Death to Social Media
Meta records the largest one-day loss in the history of Wall Street
Shares in Facebook plummeted as much as 22% following a less than convincing earnings report that saw Meta record their first-ever fall in global daily active users (DAUs).
The daily loss of $230 billion was the largest one-day loss in the history of Wall Street and sent ripples through markets. It wasn't just Facebook suffering; social media contagion saw other players decimated, with Snap, Twitter and Pinterest recording significant losses.
Snap plunged by over 20% following Facebook's earnings call, but reported their first-ever profitable quarter later that evening to send its stock soaring by as much as 62% at one point! This crazy two-day price fluctuation should function as a cautionary tale for investors.
These short-term price movements are rarely logical, typically over-reactive to the extreme and impossible to decipher in real-time.
For most, last week's volatility should function as a reminder that you are not doing yourself any favours by watching the play-by-play if you're not a full-time trader.
Ultimately if you have a longer-term time horizon, you're adding undue stress and anxiety by over-analyzing each tick higher or lower.
So here is your timely reminder to stop checking prices. Log out of your brokerage app. Remind yourself why you invested in the first place instead of fixating on the daily price movements.
Nothing New Here
Remember, stock market losses are a regular occurrence. Since 1950, the S&P 500 has had an average drawdown of 13.6% over a calendar year. And yet, markets have continued to grind higher over time.
The volatility you get from stocks is the prices you pay for the high returns they offer. It's not free.
Predicted increases to the FED Funds rate have led to much of the recent sell-off. In my opinion, these rate hikes are priced into markets, and much of the correction has been completed.
With that said, volatility is here to stay with geopolitical tensions in Russia, inflation uncertainty and the tapering of economic stimulus at the forefront of investor sentiment.
It is unlikely to be as easy as it has been with valuations stretched in places, but it is hard to get overly negative with fundamental trends so solid.
Earnings remain strong, valuation metrics are contracting, GDP is at an all-time high and continues to grow, company margins are improving, and consumer demand is now above pre-pandemic levels.
The game isn't over. It all just gets a little harder from here.